Few situations in life require you to lay bare your financial health and history in such full-color detail the way buying a co-op does. While it may be stressful and time-consuming to prepare and share all the documents required for evaluation and acceptance, the end result—getting the home of one’s dreams—is almost always worth the effort. 

Know What to Expect

When it comes to the delicate task of determining who to accept into a co-op community, board members look at a broad range of factors, but they’re really seeking one core characteristic: “They want to see stability,” says Jacky Teplitzky, a licensed real estate broker with Douglas Elliman in Manhattan. “They want to see that you’ve been in the same job or line of work for a while. If they see you jump from one job to another in different fields, it’s a red flag. It’s not just about funds; it’s about patterns.”

In general, boards will ask applicants for some standard pieces of information. According to attorney Steven Troup, a partner at the law firm of Tarter Krinsky & Drogin LLP, which has offices in New York City and New Jersey, these pieces can include “a credit check, background check, statement of net worth, statement of financial condition, two years of federal tax returns with all schedules, employment verification, landlord verification and business and professional references.” 

With regard to tax returns, Teplitzky says some co-ops may require three years’ worth. Again, this is to look for patterns. For example, individuals who work on a commission basis may need to prove that the ebb and flow of their income is not so dramatic that it could leave them in financial jeopardy. “If you make a very small base and the rest is bonuses, boards want to see consistency,” says Teplitzky. 

Attorney Steven Sladkus, a partner at the Manhattan-based law firm of Schwartz Sladkus Reich Greenberg Atlas LLP, adds, “Co-ops can ask for whatever they want in the course of making their decision. They want to make sure that a prospective purchaser is not a risk to default on their obligation.” That stability is important to the economic health of the entire co-op—one individual who falls behind in their fees or is unable to pay an assessment can quickly become a burden to the entire co-op community, something that is not fair to their fellow shareholders. With their fiduciary responsibilities, this is a matter of serious consideration for board members.  

In addition to presenting an expansive set of financial records, potential buyers also must fill out an often lengthy purchase application. These applications may inquire about a broad range of non-financial aspects, including information on who, aside from the applicant, will be residing full-time in the apartment, as well as information about the applicant themselves, including questions about education and an explanation of his or her line of work.  

Specific financial questions will include a look at assets, including investments, real estate, life insurance, art, furniture and other personal property. That will be tallied up against liabilities such as loans (including those to relatives); taxes and contingent liabilities. The examination of fixed costs may look at things such as education expenses, insurance costs, utilities, alimony and child support and home-related costs such as maintenance, mortgage and financing. 

The application also may include questions about whether or not any part of the cash portion of the purchase will be borrowed from another source; whether the applicant has been involved in a bankruptcy or foreclosure; and whether or not they have had past disputes with a landlord or co-op or condo board. Applicants are usually able to provide an explanation for their responses, allowing them to help paint a fuller picture of an incident than a cut-and-dry yes or no usually provides.

A personal cover letter also may aid in telling the applicant’s story, allowing them to weave financial information into a broader portrait of their past and current situations. 

Don’t Cut Corners

While a process as enormous as this one might tempt an applicant to cut corners or fudge on a few facts here and there, honesty is crucial; an entire application could be rejected should a discrepancy be discovered. Plus, it is important to remember that just about every fact shared on the application will require backup in the form of current and up-to-date financial statements, tax returns, and letters of confirmation and support from banks and employers. 

“For every single dollar, they’re going to want to see backup,” says Teplitzky. “If you are an independent contractor, they want to see letters from your CPA and banker. How long have you had your accounts? Are you in good standing? If you’re currently renting, they will want a letter from your landlord. It’s your whole financial life on a platter.”

In tandem with financial stability often comes professional stability. “They are looking for character,” Teplitzky says. “They want to make sure you have good standing in the community.” 

Any No-No’s?

When it comes to financial questions, there is nothing off-limits for a co-op board to request. “They are a private corporation,” says Teplitzky. “They can ask anything they want to ask. They can turn someone down without giving any reasons. They either say yes or no. They are not obligated by any law to say why not.” 

What Teplitzky says is current law in New York City but not in Suffolk County. Since 2010, there has been a law on the books (Chapter 391 of the Laws of Suffolk County) requiring a co-op board to acknowledge within 10 days receipt of any application to purchase; and within 45 days after receipt of the application, requiring the board to make a decision, provide the purchaser with written notice of that decision, and in the case of a denial, provide grounds for rejection.

However, according to Marc Schneider, managing partner of the Long Island and New York City-based law firm of Schneider Mitola LLP, “there are no specific penalties or consequences, should a board fail to comply” in Suffolk County. And, he notes, the purchaser retains the right to use any denial as evidence if they wish to file an anti-discrimination complaint within the county. Automatic approval of the application is not required by Suffolk County.

What Can’t You Ask

The one caveat, says Troup, is that boards cannot ask “anything that is intended—or may be deemed to have material unintended consequences—to elicit information about the unlawful discriminatory categories, such as race, national origin, marital status, sexual preference or gender identity.” Boards also cannot ask for photos of applicants or their children. In addition, Troup says, the application should not “ask an applicant if he or she has been arrested and/or convicted of a crime.” 

Sladkus agrees that “There’s not much off-limits with financial documents, but (the board) should not be intrusive just for the sake of being intrusive.” 

Red Flags & Turn-Downs

Despite the hard work and effort that goes into putting together what they applicant might feel is a perfect package of information, they might still get that dreaded rejection. Those “no’s” might have been triggered by some basic red flags that boards and managers look for as they try to make their decisions. 

“There is no set rule of thumb,” says Sladkus. “Every co-op is different.” That being said, some issues that may raise eyebrows could include “out-of-the-blue deposits of large sums to show they have more money than they might really have,” he says. “Or when they look at the income-to-debt ratio, they’ll look at how high the debt is. That’s income that won’t be going to the co-op. It’s going elsewhere every month. The board wants to make sure that you have enough money in the bank after closing so that you are not bleeding yourself dry. They want to make sure you can still pay the mortgage, taxes and assessments.” 

Rejection can be difficult, especially if it comes without a reason. Some people may be tempted to try again and re-plead their case. “Sometimes the applicant can try to appeal if they think they know the reason for being turned down,” says Teplitzky. Sometimes if the board rejects the applicant before the interview takes place, the applicant may be able to narrow the problem down to something the board must have seen in the application package. That sometimes leads to guessing games as the applicant and their realtor try to determine where things went awry. 

Re-applying, though, does not always yield the desired results. “It depends on the board if they want to entertain an application again,” says Sladkus. “The board might be skeptical about whether it’s legitimate. What has changed between then and now?”

Making the Correct Judgments

When the stakes are so high, it is important for everyone to be playing their A-game, not only when it comes to putting together a suitable application, but also when it comes to evaluating that application. “That is why you have nine members on a board,” says Teplitzky. “They are all looking at the information. And, in New York, you almost always have a lawyer or treasurer with some sort of financial experience on the board.” 

In the event that the board wants additional expert support, the managing agent can lend a hand. Says Sladkus, “Sometimes boards will call their professionals – lawyers, accountants, etc.—to get their expertise. They can give neophytes an idea of what other buildings do.” 

One thing boards have to get right on behalf of their applicants is privacy. In order to keep buyers’ sensitive personal information safe and confidential during their deliberations, Troup suggests, that they “limit the number of copies made of the application packages to one per reviewing board member or admissions committee member. The managing agent should keep one also.” 

Troup also recommends that all copies of the applications should be shredded after closing or within 90 days after a turn-down. Although “I recommend that the managing agent should retain one copy in the shareholder’s permanent file,” he says. 

It is also helpful for board members to review any written policies that the co-op may have on confidentiality in this process, documents that might outline the confidential duties of board members who review applications. These policies may provide, says Troup, “that no one is to disclose, verbally or in writing, the content of any application package to anyone other than others who review applications and are similarly bound to confidentiality.” 

Ultimately, for those individuals who are seeking their own co-op dream, it is likely best to go into the process knowing that it is going to be a complex and challenging one. Preparation can help ease anxiety, putting people at ease in the knowledge that they have offered up the best financial and personal portrait of themselves. If all goes well, the whole process will have been worth the effort, especially if it comes with two bedrooms and a stunning view.         

Liz Lent is a freelance writer and a frequent contributor to The Cooperator.